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Adens, Schultz, batten down hatches

Newletter editors are preparing for trouble

PeterBrimelow

NEW YORK (MarketWatch) — I wrote recently that Pamela and Mary Anne Aden are women for all seasons. Current season: they’re battening down the hatches — and so is their distinguished passenger.

I named the Aden Forecast 2010 Letter of the Year because of its strong short and longer-term record and also because of its powerfully articulated strategic vision. See Dec. 30, 2010 column.

On its record, let’s just say this: Over past 12 months through February, the letter is up 39.27% by Hulbert Financial Digest count vs. 24.18% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

Over the past ten years, the letter is up a remarkable annualized 11% vs. 3.72% annualized for the total return Wilshire 5000.

Supreme Court Justice Presides Over Hamlet's Trial

(3:06)

For some Supreme Court Justices, their hobby is a lot like their day job. They run mock trials of characters drawn from works of literature. Exhibit A: Hamlet on trial for competency, Justice Anthony Kennedy presides. WSJ's Neil Hickey reports.

As it happens, in its most recent issue, the Aden Forecast summarizes its viewpoint on what it describes as the “Five Big Trends For The Next Five Years” with even more powerful articulation:

(1) Inflation is headed up.

(2) Gold and silver are headed up.

The Adens think the gold and silver rise could be more dramatic that the 1970s. However, they write:

“Let’s say it is similar to the 1970s, then as we mentioned last month, gold could eventually rise to about $6,000 and silver to $150. We’re not saying these will be the ultimate upside targets, but they could be.”

(3) The US dollar is headed down.

(4) Interest rates are headed up.

(5) Bond prices will fall.

Here the Adens say:

“Even though the Fed says they’re going to keep interest rates low to help the economy, they simply won’t be able to. The Fed can control short-term interest rates, but not long-term rates. And with the U.S. needing more and more money to finance all of its expenses, the marketplace will demand higher rates in exchange for the growing risk. Under the current circumstances, interest rates are poised to rise much further in the years ahead.”

Despite this grim long-run outlook, the Aden sisters are acutely aware that stocks in the short run can be strong. And, heroically, they intend to ride the wave. See Oct. 18, 2010 column.

But the big news now: they’re getting worried. They write:

“Currently, the Dow Jones Transportation Average
DJT, -0.15%
will remain under downward pressure by staying below 5,150… As for the Dow Jones Industrial Average
DJIA, +0.72%
watch 11,800. If it declines and stays below that level then it will be following the Transports, which would be a sign of weakness. But the bull market will remain in force above 10,900.”

The Adens’ cautious conclusion: “It looks like the market is jittery but it’s not in trouble. It could have a further downward correction, like it did in 2010, which would be normal considering its strong rise since then.”

The Adens add: “This is a time to stand back and let the market tell us what to do next… For now, we’re taking profits by selling iShares S&P Global Technology Sector Index ETF
IXN, +0.50%
and Japan Smaller Capitalization Fund Inc.
JOF, +0.86%

Very unusually in an egomanicial industry, the Adens now collegially give regular space to a column by Harry Schultz, the extraordinary veteran gold bug whose recently-closed International Harry Schultz Letter did, in fact, predict the Crash of 2008. See Jan. 10 column.

Exactly comporting with the Adens’ short-term respect for markets, Schultz, although he has long predicted that the Eurozone will break up, says: “Not high odds this year… Most vital clue: the euro charts are bullish at this time, vs. most currencies. So, if you believe in follow-the-money, stay with the euro.”

Schultz does warn, however, that inflation is deceptively masked in the First World because “people have cutback on discretionary spending!! (the stuff they don’t HAVE to buy)… In the Third World, inflation will rise faster due to food shortages and disproportionate price rises. A two-speed world. But less discretionary spending doesn’t stop underlying inflation (note food riots).”

Echoing a long standing theme, Schultz adds: “Also, hyper inflation is usually a ‘confidence event’ and thus not always or necessarily foreseeable in market action.” See June 10, 2010 column.

Schultz’s cheerful conclusion: “Frankly, dear reader, seems we’re out of the eye of the financial hurricane, returning to full crisis.”

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